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For a sensible and mature owner-manager partnership to flourish, investor holding periods need to be aligned with business planning horizons. Many significant p

For a sensible and mature owner-manager partnership to flourish, investor holding periods need to be aligned with business planning horizons. Many significant projects need between 6 months and 5 years to come to maturity, and holding periods should reflect this pattern (according to the needs and nature of the business). I would argue that investors with a 3 month holding period are actually exerting a pretty corrosive influence on businesses: emphasising a focus on the next quarter's results at all costs.

wbl 13y ago
A company isn't affected by who holds the stock. If I decide that I don't want to hold a stock in a company building a bridge across a river, and sell it to Jack, why does that change the company's desire to finish the bridge?
- harryh 13y ago
  Because if Jack does't want to build the bridge and he holds enough of the company then he gets to say "stop building the bridge."
  - lmm 13y ago
    Is there evidence that's actually what's happening? I hear a lot of complaints on the internet about a quarterly results focus, but I've never heard of shareholders actually telling a company to change tack.
    - bertil 13y ago
      There are anecdotal evidence of this regularly happening, but usually those are fair decisions: both strategies discussed are generally sound, if radically opposed. One is generally a cash-out option and is favored by influential raiders who want the cash flow to invest elsewhere; the other is a growth option that might be more about serving management’s ambition that the stakeholders' interest. But those debate are public, rare and not entirely nefast. What I have seen far more often is smart decisions delayed to please the investors, or costly decisions taken, at all stages: before or during Series A, B or further, before or during an IPO, etc. The most common ones are related to HR: contractors costing double and won't be here when what the set up breaks rather than employees to set-up a strategic asset because, otherwise, accounting practices would show increasing long-term duties to said employees. More generally, many companies suffer from a lack of investment because of the short-term focus — this I can describe in details in repeated cases, for the dozen of more companies that I’ve worked with. The single exception was when investors used the product themselves and behaved more like end-users.
    - harryh 13y ago
      Every time a CEO gets fired by the board of directors that's the shareholders telling the company to change tack.
    - smartbuttcute 13y ago
      http://en.wikipedia.org/wiki/Carl_Icahn http://en.wikipedia.org/wiki/Carl_Icahn
    - w_t_payne 13y ago
      Over the past two or three decades it has become increasingly common for large and institutional investors to regularly hold meetings with the senior leadership (and investor relations) teams of the companies with which they have (or are looking to have) significant holdings. After all, the investor needs to understand the business strategy, the operating conditions, and the particular risks and opportunities available to that business. The company and (particularly) it's management have an interest in increasing demand for the stock, so they normally oblige. The conversation is not one-way. Stock options mean that the personal financial interests of the senior leadership team are normally well-aligned with that of the investors, so all the parties to these discussions have a mutual interest in the performance of the stock. Investors have a mandate to maximise return and minimise risk. They have a limited ability to predict the future; an ability which drops precipitously the longer into the future they look. Investing client funds based on unreliable long-term predictions would be an irresponsible dereliction of duty on the part of the fund manager. In addition, measuring the performance of fund managers is also notoriously difficult, so there is a very human need to get as much feedback on performance as possible as quickly as possible. All of these factors combine to exert incredible pressure on the institutional investor to focus on gains in price over shorter time-spans (months rather than years). This interest and short-term focus will naturally come across in discussions between the investor (=owner) and the senior management in the company. It takes an unusually self-aware, self-confident and self-assured management team to recognize (let alone resist) this inexorable pressure.

wbl 13y ago

A company isn't affected by who holds the stock. If I decide that I don't want to hold a stock in a company building a bridge across a river, and sell it to Jack, why does that change the company's desire to finish the bridge?

harryh 13y ago
Because if Jack does't want to build the bridge and he holds enough of the company then he gets to say "stop building the bridge."
- lmm 13y ago
  Is there evidence that's actually what's happening? I hear a lot of complaints on the internet about a quarterly results focus, but I've never heard of shareholders actually telling a company to change tack.
  - bertil 13y ago
    There are anecdotal evidence of this regularly happening, but usually those are fair decisions: both strategies discussed are generally sound, if radically opposed. One is generally a cash-out option and is favored by influential raiders who want the cash flow to invest elsewhere; the other is a growth option that might be more about serving management’s ambition that the stakeholders' interest. But those debate are public, rare and not entirely nefast. What I have seen far more often is smart decisions delayed to please the investors, or costly decisions taken, at all stages: before or during Series A, B or further, before or during an IPO, etc. The most common ones are related to HR: contractors costing double and won't be here when what the set up breaks rather than employees to set-up a strategic asset because, otherwise, accounting practices would show increasing long-term duties to said employees. More generally, many companies suffer from a lack of investment because of the short-term focus — this I can describe in details in repeated cases, for the dozen of more companies that I’ve worked with. The single exception was when investors used the product themselves and behaved more like end-users.
  - harryh 13y ago
    Every time a CEO gets fired by the board of directors that's the shareholders telling the company to change tack.
  - smartbuttcute 13y ago
    http://en.wikipedia.org/wiki/Carl_Icahn http://en.wikipedia.org/wiki/Carl_Icahn
  - w_t_payne 13y ago
    Over the past two or three decades it has become increasingly common for large and institutional investors to regularly hold meetings with the senior leadership (and investor relations) teams of the companies with which they have (or are looking to have) significant holdings. After all, the investor needs to understand the business strategy, the operating conditions, and the particular risks and opportunities available to that business. The company and (particularly) it's management have an interest in increasing demand for the stock, so they normally oblige. The conversation is not one-way. Stock options mean that the personal financial interests of the senior leadership team are normally well-aligned with that of the investors, so all the parties to these discussions have a mutual interest in the performance of the stock. Investors have a mandate to maximise return and minimise risk. They have a limited ability to predict the future; an ability which drops precipitously the longer into the future they look. Investing client funds based on unreliable long-term predictions would be an irresponsible dereliction of duty on the part of the fund manager. In addition, measuring the performance of fund managers is also notoriously difficult, so there is a very human need to get as much feedback on performance as possible as quickly as possible. All of these factors combine to exert incredible pressure on the institutional investor to focus on gains in price over shorter time-spans (months rather than years). This interest and short-term focus will naturally come across in discussions between the investor (=owner) and the senior management in the company. It takes an unusually self-aware, self-confident and self-assured management team to recognize (let alone resist) this inexorable pressure.